TaxTMI 
TaxTMI 
2020 (2) TMI 508
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....g grounds of appeal: "1.1 The Ld. CIT(A)-1, Thane, erred in conf irming the action of the ACIT, Circle-1, Mumbai (AO) in denying the exemption of Rs. 10,22,18,588/- claimed by the appellant u/s 35(2AB) of the Act. 1.2 it is submitted that in the facts and the circumstances of the case, and in law, no such denial of exemption was called for. 2. The Appellant craves leave to add, alter, delete or modify all or any the above ground at the time hearing". 3. The brief facts of the case are that, the assessee is engaged in the business of manufacturing enzymes (biotechnology products). The company has set up in house Research & Development (R & D) labs, in Thane, Sinnar for R& D activity, which is also integrated part of business activities. During the year under consideration, the assessee has incurred R&D expenditure of Rs. 6,81,45,725/-, (including capital expenditure of Rs. 43,12,032/-) and claimed weighted deduction of Rs. 10,22,18,588/- u/s 35(2AB) of the income Tax Act, 1961. The R&D facility set up by the Assessee has been recognized by the Department of Scientific and Industrial Research (DSIR), Ministry of Science and Technology, Govt. of India, New Delhi, vide letter No....
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.... deduction from A.Y 2002-03 to 2008-09 and the department has accepted the claim. Therefore, for this year without there being any change in facts and circumstances, deduction claimed u/s 35(2AB) of the Act, cannot be rejected, merely for the reason that approval was not granted in form 3CM by the Secretary, DSIR, Ministry of Science and Technology, Govt. of India. The assessee further contended that, the A.O never disputed the fact that the assessee has setup R&D facility at various centers and genuineness of expenditure has not been doubted. The only reason for denial of weighted deduction is that, in absence of approval by the competent authority in form 3CM. It was further claimed that, when the facility has been recognized right from A.Y 2001-02 and the claim of the assessee has been accepted in earlier years, there is no reason for the A.O to reject the claim for the year under consideration, when all conditions prescribed u/s 35(2AB) of the Act, for claim of weighted deduction are fulfilled. 6. The CIT(A) after consider the submissions of the assessee and also taken note of provisions of Sec. 35(2AB) of the Act, and Rule 6 and 7A of Income Tax Rules, 1962, held that as per ....
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....ight of provisions of Sec. 35(2AB) of the Act and Rule 6 and 7A of Rules, 1962, before coming to the conclusion that the assessee R&D facility has not been approved by the competent authority, ignoring the fact that the assessee R&D facility at three places are initially recognized by the DSIR, Ministry of Science and Technology, Govt of India, right from A.Y 2001- 2002 and assessee continuously claimed weighted deduction up to A.Y 2008-09 and such claim has been accepted by the Department. The Ld. AR for the assessee referring to initial recognition issued by the DSIR submitted that, it is settled position of law that once R&D facility has been recognized by the competent authority, then subsequent renewal on periodic basis is not necessary for the purposes of claiming benefit of weighted deduction, but what is necessary is compliance of prescribed procedures. The assessee has filed an application in form 3CK along with necessary agreements well within time allowed under the Act, but the approval if any from the competent authority is not in the hands of the assessee. Therefore, merely for the reason that the competent authority has not approved the facility for the impugned peri....
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....sequent period right from A.Y 2014-15 onwards there is no dispute, the competent authority has approved the facility and issued necessary approval in form 3CM and the department has accepted the claim of the assessee. Therefore, he submitted that during this period the claim of the assessee cannot be denied merely for the reason that necessary from 3CM was not on recorded, even though, the assessee has fulfilled rest of the conditions prescribed u/s 35(2AB) of the Act and Rule 6 and 7A of the Income Tax Rules, 1962. In this regard, he relied upon the following judicial precedents: 1. Indian Planetary Society Vs. CBDT & Ors. [2009] 318 ITR 102 (BOM). 2. CIT Vs. Claris Lifesciences ltd., [2010] 326 ITR 251 (Guj). 3. CIT Vs. Wheels India Ltd., [2011] 336 ITR 513 (Mad) 4. CIT vs. Sandan Vikas ( India) Ltd., [2011] 335 ITR 117 (Del). 5. Maruti Suzuki India Ltd., Vs. Union of India (2017) taxmann.com 45 (Del). 6. Banco Products ( India) Ltd., Vs. DCIT (2018) 405 ITR 318 (Guj). 7. CIT Vs. Sun Pharmaceutical Industries Ltd., [2017] 250 Taxman 270 (Guj). 8. DCIT Vs. Famy Care Ltd., [2014] 52 taxman.com 461 (Mum-Trib). 9. CIT Vs. TVS Electronics Ltd., [2019] 105 taxmann.com....
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....ndatory. In absence of approval, the benefit of deduction u/s 35(2AB) of the Act, cannot be granted. The Ld. DR further submitted that although the assessee has relied upon the decision of Hon'ble Gujarat High Court in the case of CIT VS. Claris Lifesciences Ltd., (2010) 326 ITR 251 (Guj) and Hon'ble Delghi High court in the case of Maruthi Suzuki India Ltd. Vs. Uniion of India (2017) 84 taxman.com 45, but fact remains that the Tribunal after considering those two judgments has come to the conclusion that for the purpose of claiming weighted deduction u/s 35(2AB) of the Act, approval from competent authority in prescribed form 3CM is must. Therefore, there is merit in the arguments of the assessee that when initial recognition was granted, subsequent renewal/approval on periodic basis in not required. 11. We have heard both the parties, perused the material available on record and gone through orders of the authorities below. The assessee is in the business of manufacturing industrial enzymes. The assessee has setup three R&D facilities at various places and such R&D facilities has been approved and recognized by the competent authority, DSIR, Ministry of Science and Technology, G....
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....lid for the period under cover. The provisions of Sec. 35(2AB) of the Act, deals with a cases where a company engaged in the business of manufacture or production of any article or thing incurs any expenditure on scientific research on in-house research and development facility as approved by the prescribed authority, then there shall be allowed a deduction of some equal to 150% of such expenses incurred by the assessee for in-house research and development facilities. For this purpose, prescribed authority is Secretary, DSIR, Ministry of Science and Technology, Govt of India. Further, Rule 6 and 7A of Income Tax Rules, 1962 provides for procedure of approval of R&D facility. As per Rule 6 of the Income Tax Rules, 1962,the prescribed authority for expenditure on scientific research and development for the purpose of 35(2AB) of the Act, shall be the Secretary, DSIR. Sub Rule (4) requires the assessee to furnish the application in form 3CK. As per Sub Rule 5A, if the prescribed authority is satisfied the conditions provided in this Rule and in Sub Sec. 2AB of Sec. 35 of the Act, are fulfilled, then the prescribed authority shall pass an order in writing in from No. 3CM. In this case,....
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....le Delhi High Court and such writ petition filed by the assessee is pending for adjudication. Be that as it may, fact remains that its facility has been initially recognized from the A.Y 2001-02 onwards, and the assessee has continuously claimed deduction u/s 35(2AB) of the Act, up to A.Y 2008-09 and such claim has been accepted by the department. It is also not in dispute that from A.Y 2014-15 the assessee has been allowed the benefit of weighted deduction u/s 35(2AB) of the Act. 14. Having said so, let us see law laid down by various Courts on this issue. The Hon'ble Gujarat High Court in the case of CIT Vs. Claris Lifesciences Ltd., (supra) has considered an identical issue in light of provisions of Sec. 35(2AB) of the Act, and held that the provisions nowhere suggest simply that R& D facility is approved from particular date and in other words, it is no where suggested that date of approval only will be cut off date for eligibility. The court further held that once facility is approved, the entire expenditure so incurred on development of R&D facility has to be allowed for weighted denudation. The Hon'ble Delhi High Court in the case of Maruthi Suzuki India Pvt Ldt., (supra) ....
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....o 31.07.2012. Thereafter, the assessee has filed an application for recognition on 09.06.2012 and such recognition has been granted by the competent authority vide its communication dated 15.01.2014, which is valid up to 31.03.2016, subsequently, the renewal has been granted up to 31.03.2019. Further, the A.O neither disputed existence of R&D facility nor genuineness of expenditure incurred by the assessee. Once existence of R&D facility was not disputed and expenditure for that purpose is genuine in nature and also the recognition was granted way back in 2001-02, which is valid even now, then merely for the reason of non issue of approval for certain period in prescribed form 3CM by the competent authority, even though, the assessee has made an application for approval in prescribed form 3CK and also filed necessary evidence including details of expenditure then, the assessee cannot be furnished non issue of such approval by the competent authority and weighted deduction claimed u/s 35(2AB) cannot be denied. 16. Coming back to the case laws relied upon by Ld. DR for the Revenue. The Ld. DR has vehemently argued the case in light of the decision of ITAT Mumbai, in the case of PCP ....
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....ion Gujarat High Court to the effect that the approval should be granted from the first day of the financial year in which the application is filed, irrespective of the date of the order granting such approval. Coming back to another case relied upon by the Ld. DR in the case of Nivo Controls Ltd. Vs. CIT. We find that the Tribunal has rejected the claim of the assessee on entirely different facts which is evident from the fact that in 263 proceedings it has upheld the findings of the Ld. CIT for rejection of deduction u/s 35(2AB) of the Act, on the ground that the assessee has failed to maintain separate books of account for its R&D facility on the basis of admission of authorized representative of the assessee that no such separate books of accounts were maintained. 17. In this case, it is undisputed fact that the recognition was valid from 01.04.2001, and which was available during this period. The application for approval in form 3CK was filed as back as in 09.01.2002. The assessee has claimed deduction u/s 35(2AB) of the Act, right from A.Y 2001-02 to A.Y 2008-09 and such claim was accepted by the department. Further, the facility was approved / recognized up to 31.032016, vi....